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TMI Blog2009 (12) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... de of the amount of the obligation. The value of the contingent liability like the warrant expense, if properly ascertained and discounted on accrual basis, can be an item of deduction under section 37 of the Act. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: an enterprise has a present obligation as a result of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture and supply of cement plant, engineering and structural drawings, goods and services. The assessing officer did not allow the deduction in respect of provision for warranty of a sum of Rs.9,79,68,895/-. Against that order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax (Appeals) directed the assessing officer to modify the order and pass necessary consequential order. Against that order, the department preferred an appeal before the Tribunal and the Tribunal, following the assessee's own case for the assessment year 2000-01 and following the decision of this Court in CIT v. Beema Manufacturers P. Ltd., (2003) 130 Taxman 400, held that the provisions for warranty made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. A provision is recognized when: an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation and held that the provision made for warranty in respect of such sophisticated goods would be entitled to deduction from the gross receipts under section 37 of the Act. 5. Following the said judgment, this Court in assessee's own case in the case of CIT III v. M/s. FL Smedth Ltd., Tax Case (Appeal) No.341 of 2004 by order dated 09.06.2009, after extracting paragraph 7 of the judgment of Supreme Court cited supra, answered the question of law in favour of the assessee and agai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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